SYSTEM PLANNING THE KEY TO RELIABILITY AND A LIQUID ELECTRIC MARKET

1. SYSTEM PLANNINGTHE KEY TO RELIABILITY ANDA LIQUID ELECTRIC MARKET KENNETH A. DONOHOO Manager of System Planning, Technical Operations kdonohoo@ercot.com www.ercot.com

2. PEAK DEMAND *This value would have been greater if there had been no interruptible load curtailments at the time.

3. SUMMER 2001PROJECTIONS * Middle Of Road

4. MONTICELLO-FARMERSVILLE 345 kV CIRCUIT LIMESTONE-WATERMILL 345 kV DCKT AUSTROP-LOST PINES-FPP 345 kV CIRCUIT LYTTON-HOLMAN-FPP 345 kV CIRCUIT NEW MAJOR TRANSMISSION FOR 2001 SUMMER MILITARY HIGHWAY STATCOM +/- 150 MVAR

5. FARMERSVILLE-ANNA 345 kV CCN JANUARY 2001 IN SERVICE DEC 2002 GRAHAM – JACKSBORO 345 kV LINE CCN FILED BY JUNE 2001 IN SERVICE DEC 2002 MORGAN CREEK–SAN ANGELO–COMANCHE SWITCH 345 kV LINE CCN AUGUST 2001 IN SERVICE DEC 2002 SAN MIGUEL–PAWNEE 345 kV LINE CCN NOVEMBER 2000 IN SERVICE MAY 2002 HOUSTON AREA UPGRADES COLETO CREEK–PAWNEE 345 kV LINE CCN DECEMBER 2000 IN SERVICE MARCH 2002 RIO GRANDE VALLEY SERIES CAPACITOR COMPENSATION IN SERVICE SEPTEMBER 2001 MAJOR TRANSMISSION PROJECTS UNDERWAY

6. MAJOR AREAS OF CONCERN • COLLIN – DALLAS - DENTON- TARRANT COUNTIES • Possible Generation Reduction – Emissions Limits • 25% to 30% of ERCOT Load • Growing 500 MW to 800 MW per Year • HOUSTON AREA • New/Additional IPP Generation • WEST TEXAS • New IPP Generation • New Renewable Wind Generation • BRYAN – COLLEGE STATION AREA • Voltage Problems • SOUTH TEXAS • New/Additional IPP Generation • Rio Grande Valley Load Growth • Possible DC Ties to CFE (Mexico)

7. NEW TRANSMISSION • Most new transmission additions will be driven by new generation. • New transmission capacity provides opportunities for additional competition, which should result in lower prices. • Robust transmission network is required to support a liquid competitive electricity market. • Direct costs of transmission service in ERCOT are a small fraction of the total cost of electricity, usually less than 10%.

8. ERCOT TRANSMISSION STUDIES • Focus on Security • Take Multiple Needs and Plans Into Account • Look Beyond Specific Entities’ Requests • Identify Broader Regional Needs • Promote Efficient Use of Transmission Corridors • New Transmission Additions Should Provide for More Capacity Than Current Identified Contingencies (Margin) • Consolidate Projects Where Practical • Based Upon ERCOT Planning Criteria

9. TRANSMISSION PLANNING PROCESS • Propose needed bulk transmission facility additions based on identified constraints. • Conduct an open process of review and comment on proposed facility additions. • Submit all final recommended bulk transmission facility additions to the ERCOT Board of Directors for review and concurrence. • Determine the designated transmission service providers of the additions. • Notify the Public Utility Commission of Texas (PUCT) of all Board supported transmission facility additions and their designated providers. • Projects proposed by interested parties may be submitted to ERCOT for review and considered for endorsement according to PUCT rules.

10. PHYSICAL CONSIDERATIONS • Transmission planning is no longer a vertically integrated utility generation/transmission planning process • There are fewer long term energy contracts to influence transmission planning • Almost all new generation is combustion turbines and can be built in 2 years • Significant transmission projects take in excess of 3 years to build • Generation buy/sell transactions based on market forces instead of traditional fuel costs and heat rates • Loads will be bidding in as an operating resource • Proposed generating units may insist that they be considered in lieu of new transmission • Many generating units are now being proposed – not all will be built

11. EDUCATIONAL CONSIDERATIONS • ISO, RTO and Transco planners tend to learn the new planning considerations very quickly • Traditional utility planners tend to be slow to change as they think mainly about “their” system • Regulatory agency reviewers still very traditional in looking at need and at cost – slow to realize that adequate transmission pays for itself in market liquidity • Need education in the new requirements to facilitate project acceptance and permitting

12. POLITICAL CONSIDERATIONS • Some transmission providers do not want new transmission as it fosters competition • Some new generators do not want new transmission for the same reason • Many regulatory agencies are not ready to face up to a “build nothing” public attitude • Public wants a reliable electric system but does not want new plants and lines • Investors are unlikely to spend money until it is clear that they will recoup their investment and earn a reasonable return on that investment.

13. FOOD FOR THOUGHT • Transmission planning should be done mainly by a third party ISO, RTO, or Transco and should include coordination with the involved regulatory bodies • ERCOT Regional Transmission Planning Process • Includes TSP’s and PUCT Staff • Review by Stakeholders • Large projects reviewed by ERCOT Board • Final Authority is PUCT in the form of a CCN

14. COMPARING TRANSMISSION • LIFETIMES • Transmission is log-lived (30 to 50 years) • Long life enhances confidence • Reduces flexibility to respond to change • AVAILABILITY • Transmission has very high availability factors • Much higher than generation or load • CAPITAL AND OPERATING COSTS • Transmission capital costs can be high • Transmission operating costs are very low • Generator operating costs are high and depend on uncertain future fuel prices • Tradeoff between transmission sunk costs against operating costs for generation and load management

15. COMPARING TRANSMISSION • TECHNICAL APPLICABILITY • Distributed resources cannot always solve problems • High voltages • Transient stability • Need to replace aging or obsolete equipment • Connection of distributed resources may impose new costs on the system • System-protection schemes • ECONOMIES OF SCALE • Building large transmission lines is cheaper per MW of capacity • Higher voltage is cheaper per MW-mile and also requires less land per MW-mile

16. NEW TECHNOLOGIES • Superconducting Magnetic Energy Storage (SMES) • High-temperature Superconducting (HTS) • Flexiable AC Transmission System (FACTS) • High-voltage DC (HVDC) • HVDC Light • Current costs are generally more expensive when compared to regular transmission. • As they are improved and demonstrated, their costs may drop enough to become cost effective. • Lifetime is short when compared to transmission • Maintenance & Operating Costs is a major concern

17. ~ 1100 MW to 1200 MW OUT STABILITY LIMIT ~ 300 MW to 800 MW OUT THERMAL LIMIT TOTAL TRANSFER CAPABILITY CURRENTLY

18. CONSIDERATIONS • CONSTRUCTION CLEARANCES • DYNAMIC LINE RATING • Thermal Only • May actually result in lower ratings • AEP & TXU are moving forward • HOT LINE CONSTRUCTION • Safety • Longer Construction Time • More Expensive • SPECIAL PROTECTION SCHEMES • Trip Off Line Generation

19. ASSESSMENT CRITERIA • Process must be open and rapid. • Strive for robust; rather than optimal, transmission solutions. • Recognize that regulated and competitive assets often perform the same function; select lowest-cost alternative. • Encourage investment in transmission projects that improve energy-market opportunities. • Encourage use of technologies that provide flow control, such as DC lines and FACTS devices.

20. ERCOT TEAMWORK & ATTITUDE GOES A LONG WAY

21. QUESTIONS FOR MORE DETAILS AND ADDITIONAL SYSTEM DATA VISIT THE SYSTEM PLANNING TECHNICAL OPERATIONS WEBSITE AT: ftp://ftp.ercot.com/systemplanning/system_planning_department.htm